Free-market Policy Cretes Free-for-all

Criticism Rises In Face Of Benefits To Business, Consumer

March 03, 1985|By Carol Jouzaitis.

Whether you call it free-market or laissez-faire economics, neo-Darwinism or just plain deregulation, one thing is certain: Getting the government off the backs of businesses has stirred up a hornet`s nest of criticism.

Bank failures, airline bankruptcies, rising phone bills, higher rail rates and increasing threats to the environment and safety in the workplace all have been blamed on the abrupt unraveling of the nation`s regulatory fabric that has occurred since the late 1970s.

The economists who constituted the driving force behind deregulation argue that the resulting upheaval was inevitable. Businesses` inefficiencies, covered for decades by artificial barriers to competition, were suddenly exposed, and the severe recession accelerated a shakeout, they say.

Companies, even some that previously opposed deregulation, say that the market has forced them to be more productive and innovative, to slash costs and lower prices for the public.

``To the Teamster truck driver who took pay cuts and has been unemployed, deregulation is bad,`` said Marvin Kosters, director of the American Enterprise Institute. ``But for you and me, grocery prices have been cut by a few pennies and that makes it all worthwhile.``

``There`s a lot more to study,`` maintained Murray Weidenbaum, former chairman of the Council of Economic Advisers under President Reagan. ``But on the whole consumers are better off.``

Opponents of deregulation, however, are becoming more vocal about its destructive effects, and the social costs, of unfettered competition. The free market is more akin to the law of the jungle, they say. There is evidence that the invisible hand of the marketplace has reached out to squash those least able to help themselves.

``Outside of the economics profession, you`d be hard-pressed to find someone who is pleased with the way deregulation has worked out,`` said Rep. Charles Schumer (D., N.Y.).

``When industries start leaving towns because of poor transportation, when the first big environmental crisis occurs, then people will ask, `How did this happen?` `` said Susan J. Tolchin, coauthor of a book on deregulation,

``Dismantling America.``

``We should have moved slower,`` Tolchin said. ``We weren`t thinking about our national priorities, like providing accessible transportation and a stable banking system.``

``Companies are driving themselves out of business with price wars. Banks are bidding up deposit interest rates beyond what they can afford to pay,``

said John Culbertson, professor of economics at the University of Wisconsin at Madison.

There are no studies yet that try to quantify the effects of deregulation on the economy. On the social and environmental sides, however, public interest groups cite hundreds of proposed rules that have been tied up or gutted by new government cost-analysis procedures.

On the federal level so far, efforts toward re-regulation have gone nowhere. But in Congress, there`s a growing recognition of the need for new rules to protect certain segments of the population hurt by industry`s new freedoms.

For example, deregulation has been a bonanza for savers, according to bankers and industry analysts. They have gotten a whole new array of investment options paying higher interest rates that fluctuate with other money rates. In recent years, money market accounts have yielded as much as 12 percent, compared with the 5.5 percent on passbook savings accounts of a decade ago.

But government statistics show that half the families in this country have less than $1,000 to invest, well below the minimum of high-paying investments.

``These people aren`t buying individual retirement accounts. They`re lucky to have a small savings or checking account,`` said Alan Fox, spokesman for the Consumer Federation of America.

Since 1979, bank fees paid on consumer accounts have doubled to about $10 billion. In addition, banks have knocked thousands of middle-class families off their customer lists because they can make more money off bigger accounts. Major banks are seeking additional powers, including the right to sell securities and insurance, and they`re likely to get them, many industry observers believe.

Such proposals are ``a formula for disaster,`` said Rep. Schumer, one of several in Congress pressing for new consumer protections.

Legislation for disclosing of bank service fees, speeding availability of deposited funds and no-frills accounts is getting increasing attention on Capitol Hill.

``Deregulation is an empty word unless its meets the basic needs for financial services of the less affluent, the segment less able to muscle its way to the front of the line,`` said Rep. Fernand St Germain (D., R.I.).

Because of more competition among telecommunications companies, consumers can choose from a broader range of telephone equipment and reap the benefits of new technological advances.